InvestorQ : What are some of the major challenges faced by the debt markets in India?
manisha Kolvenkar made post

What are some of the major challenges faced by the debt markets in India?

Mahima Roy answered.
2 years ago

The big challenge for debt markets in India is two-fold. Firstly, debt markets in India are largely institutional in nature. The big players in the Indian debt market are the institutions like banks, insurance companies, mutual funds etc. These are the largest buyers and sellers of bonds and retail participation is almost absent. Secondly, there are too many restrictions in the debt market and the variety of debt instruments that are allowed in other countries are not permitted in India.

Why are debt markets so important? Debt markets are critical to raising long term funds for large infrastructure projects. It is estimated that Indian infrastructure requires funding to the tune of $1 trillion over the next 10 years if Indian infrastructure is to come up to South East Asian levels. This is impossible without robust debt markets. Indian debt markets are still largely OTC (over the counter) in nature; meaning most of the debt market deals are still worked out on negotiated basis. The irony is that the small amount of debt trading that does happen in India happens in the NSE, which is the largest equity market I India. That, probably, defines the unfinished agenda for debt markets in India.